Cisco CEO Warns Economic Recovery Slowing Down

Cisco Systems Inc. reported stronger earnings in the latest quarter as its customers continued to catch up on delayed purchases of networking gear, but its CEO said the company was seeing signs of the economic recovery slowing down.

Cisco CEO John Chambers also provided a sales forecast for the new quarter that came in below expectations. The company's sales are heavily dependent on capital spending at large corporations, phone companies and government agencies across the world, and an uncertain economy means those customers may spend less.

"We're seeing a large number of mixed signals," Chambers said. "We think the words 'unusual uncertainty' are an accurate description of what's occurring."

Cisco's results are a bellwether not just because of its broad customer base, but also because its quarters start and end a month after most companies. Its latest quarter ended July 31, providing a window into a month for which other companies have not reported.

Revenue shortfalls at other companies have sent stocks falling over the past month. Other stocks fell along with Cisco's in extended trading Wednesday, and the report was likely to touch off more selling across the market on Thursday.

Chambers said he saw a weak spot hitting in the second half of June, extending into July. That coincided with a falling stock market and fallout from the debt crisis in southern Europe. But the weakness appeared to pass quickly — July ended on a very strong note, Chambers said.

Earlier Wednesday, the Commerce Department said U.S. exports for June were down 1.3 percent. Telecommunications equipment was one of the decliners, along with chips, another product that's sensitive to economic cycles. The weak exports could be an indication that U.S. economic growth for the April-June period will turn out to be lower than early estimates at 2.4 percent.

As an example of "mixed signals," Chambers said many of his customers are expecting U.S. economic growth of only 2 percent in the second half of the year, yet are seeing steadily improving results in their own businesses.

Cisco's own net income and revenue both bounced back from last year's recessionary levels. Still, analysts were expecting even stronger results after a couple of quarters of Cisco exceeding its own expectations.

Cisco said it earned $1.9 billion, or 33 cents per share, in the fiscal fourth quarter that ended July 31. That's up 79 percent from $1.1 billion, or 19 cents per share, a year ago.

Revenue rose 27 percent to $10.8 billion, just under analysts' forecasts of $10.9 billion. The company had projected revenue between $10.7 billion and $10.9 billion. Revenue in the quarter last year was $8.5 billion.

In extended trading after the release of the results, Cisco shares fell $1.89, or 8 percent, to $21.84. That came on top of regular-session losses of 58 cents to close at $23.73. Other tech stocks were also hit. Competitor Juniper Networks Inc. lost 3.7 percent in after-hours trading, adding to a similar loss in regular trading.

Chambers said he expects revenue in the current quarter to rise 18 percent to 20 percent from last year, which works out to $10.65 billion to $10.83 billion. Analysts were expecting $10.95 billion, on average.

Cisco has started hiring again, adding 3,000 employees in the last six months to end July with 70,714. Chambers said the company expects to add another 3,000 in the next six months.

Cisco Systems Inc. reported stronger earnings in the latest quarter as its customers continued to catch up on delayed purchases of networking gear, but its CEO said the company was seeing signs of the economic recovery slowing down.Shares in the world's largest maker of...